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Australia Singles Out Multinational Profit Shifting Arrangements

by Mary Swire,, Hong Kong

19 September 2016

The Australian Taxation Office (ATO) has published two new taxpayer alerts that warn against international profit shifting by multinational companies.

Taxpayer Alert 2016/11 concerns a new scheme that the ATO said attempts to avoid the Multinational Anti-Avoidance Law (MAAL). The MAAL applies to multinational groups that avoid a taxable presence in Australia by operating there but booking their profits offshore.

The ATO said that, under the scheme, an Australian partnership is interposed between the foreign company and the Australian customer. It has been claimed that, because the partnership is technically an "Australian entity" for tax purposes, the MAAL does not apply, even though the partnership's profits are predominantly allocated to offshore entities for tax purposes. According to the ATO, the creation of the partnership is the only change: all other commercial interactions between the multinational and its Australian customers remain unchanged.

The ATO said that it is concerned that the interposed partnership is contrived to prevent the operation of the MAAL through an alleged technical loophole rather than by restructuring to acknowledge an Australian taxable presence.

Since the MAAL came into effect on January 1, 2016, the ATO has contacted 175 entities to assist with MAAL compliance and identify high-risk issues. These companies' affairs are now being reviewed, to confirm whether the MAAL applies and/or whether appropriate restructuring has been undertaken.

The second alert, TP 2016/10, explains the ATO's concerns as to multinationals' engagement in cross-border round-robin financing arrangements. The ATO said that, typically, an Australian company claims interest deductions on a loan from an overseas related party that is funded by the Australian company "investing" in the overseas related party. Deductions are then claimed, but income arising from this "round-robin" investment is subject to little or no tax.

TAGS: compliance | tax | investment | business | tax compliance | tax avoidance | interest | revenue guidance | Australia | tax authority | offshore | multinationals | transfer pricing | BEPS

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